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Medco is a registered trademark of Medco Health Solutions, Inc.© 2004 Medco Health Solutions, Inc. All rights reserved.

Current Trends in Rx PlanManagement

Amy Steinkellner, Pharm.D.

Vice President, Clinical Services

Medco’s Systemed Group

2© 2007 Medco Health Solutions, Inc. All rights reserved.

Agenda

What’s on the Minds of Plan Sponsors33

Drug Trend Observations22

The Prescription Benefit Landscape11


Plan sponsors in our market are leaders intheir industries and have similar challenges

Pressure to manage Rx drug costs while maintaining employeesatisfaction—73% of plan sponsors report that balancing cost with care is theirmost important concern

Rx drug costs represent about 20%-22% of overall healthcare costs

Limited benefits staff who manage multiple benefits

Limited time to focus on Rx—Benefit managers spend 10% of their day on theRx benefit

Need a strategic plan to manage drug spend and trend

Require easy-to-administer solutions with quantified results

Source: 9 Leading Trends in Rx Plan Management: Findings from a National Study sponsored by Medco’s Systemed Group. Results are from 200 planmanagers with between 1,000-15,000 plan eligibles. Completed January 2007


Total Respondents (N=1092)Q. 3. Do you (or anyone else in your family covered by this policy) take any prescriptions drugs for a medical condition or conditions

that have lasted or are expected to last for a year or longer – that is, for a recurring condition?

Key Findings

Today’s Landscape


By 2010, number of seniors aged 55-64 will increase by nearly 50%1

Seniors spend more than 3 times what younger consumers spend on prescriptiondrugs (more than 30 Rxs each)

The pharmacy benefit managementlandscape is changing rapidly…

1. U.S. Census Bureau Population Projections Bureau, Release Date January 13, 2000. 2. Medco estimates. Excludes $20-$25B in oncologyspend. 3. Medco estimates. 5. MayoClinic.com.

CMS projects drug spend to increase by 6%-9% annually through 2012

Fastest growing component—expected to reach $82 billion in 2010 compared to$33B in 20062

60 brand-name medications with sales of nearly $49 billion scheduled to becomeavailable as generics from 2006-20113, , Rx volume at mail accounts for morethan 17% of all U.S. Rx drug sale

Emerging expectations of consumers’ involvement in their own healthcare andthe potential savings in overall healthcare spending

Adverse drug reactions cause 100,000 deaths annually and 2 millionhospitalizations.5

Genetic testing expected to lower total health care costs and minimize adversereactions

Impacton Cost

S

S

S

S

S

S

Aging of America

Drug spend inflationand the need to

control costs

Specialtypharmaceutical

growth

Continued shiftto generics, mail

Increased focus onconsumerism

Personalizedmedicine


National healthcare trends(2000–2012)

*ProjectionSources: Centers for Medicare and Medicaid Services;Drug Trend Report, 2007, pp. 6-7.

Healthcare cost growth

4%

6%

8%

10%

12%

14%

16%

2000

2001

2002

2003

2004

2005

2006

*

2007

*

2008

*

2009

*

2010

*

2011

*

2012

*

Year

Nationaltr

ends

Prescription drugs

Hospital care

Physician & clinicalservices


Robust specialty drug pipelineOver 400 drugs in development*

50

44

22

22

17

15

14

12

10

9

7

6

4

4

18

Infectious Diseases

Autoimmune disorders

AIDS/HIV

Cardiovascular disease

Neurologic disorders

Diabetes/related

Digestive disorders

Respiratory disorders

Blood disorders

Genetic disorders

Skin disorders

Eye conditions

Growth disorders

Transplantation

Other

45% of drugs in clinical trials for newindications are specialty.

By 2010, specialty drug spend isexpected to reach $82B compared

with $33B in 2006.**

*Source: PhRMA 2005 Survey: Medicines in Development, Oct. 2006. Some medicines are listed in more than one category. Excludes 200oncology drugs**Source: Medco Estimates. Excludes $20-$25B in oncology spend.


Generic growth opportunityNearly $49B† brand drugs off-patent 2006-2011

(Drug spend in billions, annualized*)

7.2

4.5

11.6

1.9

12.5

13.5

2006 2007 2008 2009 2010 2011

Prevacid®

Lexapro®

Aciphex®

Topamax®

Zocor®

Zoloft®

Pravachol®

Flonase®

Mobic®

Norvasc®

Toprol XL®

Fosamax®

Risperdal®

Flomax®

Lipitor®

Effexor®

Protonix®

Source: U.S. Drug spend estimates are based on IMS Health data for 2005,compounded amounts prorated for mid-term expirations. Brand drug expirations based onexpected patent expiration dates current as of October 2006. Changes may occur due to litigation, patent challenges, etc.


Total Respondents (N=1092)Q. 3. Do you (or anyone else in your family covered by this policy) take any prescriptions drugs for a medical condition or conditions

that have lasted or are expected to last for a year or longer – that is, for a recurring condition?

Key Findings

2006Drug Trend


0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Year

Medco

Drug

Trend

Trend in transition: “The Medicare effect”

Source: Medco data

8.5%

10.2%

12.9%

14.0%

14.0%

5.4%

2.8%


Top contributors to drug spend bytherapeutic category (2006)

Cardiovascular

23.0%

23.0%

Gastroenterology

9.8%

Respiratory& allergy

9.0%Endocrine& diabetes

7.8%

7.0%

Musculoskeletal& rheumatology

5.0%

Other categories

15.4%

CNS: Neurology,mental healthand pain

Anti- infectives

Sources: Medco data; Drug Trend Report, 2007, p. 15.


20.5%

18.0%

4.6%

5.1%

6.5%

15.5%

25.2%

4.6%

Top therapeutic classes contributing tospecialty pharmacy spending (2006)

*The drugs in this class may also be used to treat plaque psoriasis, Crohn’s disease, and ankylosing spondylitis.


Multiple sclerosis

Other

Anticoagulation

Anemia

Growth hormone

Cancer

Rheumatoid arthritis*

Hepatitis C


Top projected contributors to drug trend(2007–2009)

13%

6%

6%

9%

20% 24%

22%


Cardiovascular

CNS: Neurology,mental health & pain

Endocrine & diabetes

Gastroenterology

Musculoskeletal& rheumatology

Respiratory

Other categories


Emerging trends…

The healthcare industry is changing

- Integration of organizations across industry (CVS/Caremark)

- Impact of new regulatory requirements (i.e., Med. D, HIPAA, ERISA)

A more complex, more sophisticated benefit to manage

- Drug mix is changing -- generics, specialty, and biotech

- More creative plan designs evolving

Lowering co-pays to remove barriers to compliance

Adding a 4th tier to plan design

Consumer Directed Health Plans

- New financial models emerging

Transparency

- Personalized medicine on the horizon – Genomics, Nanomedicine


Warfarin-induced hospitalizations:A strong case for genetic testing

Testing for warfarinmetabolism rate may reducerisk for hospitalizationassociated with hemorrhageor thrombosis.

Testing may reduce thenumber of doseadjustments required.

- Greater dose adjustments= greater risk forhospitalization

21.92%1,533Total

30.72%3192 or more

19.60%1,214≤ 1

IP event rateNDose

adjustment

CYP2C9

FDA Advisory Committee agrees with genetic testing for warfarin2

Sources:1.Medco data., 2.FDA Advisory Committee; fda.gov/cder/genomics. April 26, 2006.

Risk associated with dose adjustment andany hemorrhage/ thrombosis hospitalizationevent1


Future for healthcare in next 5 to 10years features personalization

Benefits are becoming personalized

- Benefit designs – member level

- Consumer – tailored tools and information

- Consumer – directed health plans


“The future ain’t what itused to be.”

- Yogi Berra

What’s On TheMinds Of Plan Sponsors?


Medco market study reveals severalimportant trends

Surveyed benefits leaders at 200 organizations with 1,000 to 15,000employees in early 2007 to:

- Uncover the concerns, challenges and attitudes employers in our targetmarket currently face in managing their pharmacy benefit.

- Understand plans for managing this benefit in the near future.

(71)(129)(200)Total Respondents

21%13%16%Nonprofit

6%11%9%Union

10%26%20%Public Sector

63%50%55%For Profit

5,000+Under 5,000Completedinterviews

Org Type


15%

73%

13%

Key Finding:Seismic shift in benefit philosophy

Five years ago, 63% of plansponsors were most concernedabout ensuring that theirmembers had the broadestpossible coverage. Today 73%of plan sponsors reportbalancing cost with care astheir primary concern.

Total Respondents (200)

Q. 5B. Please record below which one of the statements best reflects your organization’s CURRENT benefit philosophy as it pertains to theprescription benefit.

Q. 5C. Now consider how your organization’s benefit philosophy may have changed over the last five years, record below which one of thestatements best reflects your organization’s prescription benefit philosophy five years ago?

More concernedabout providing

broadest coverage

Concerned aboutbalancing cost

with care

More concernedabout managing cost

0%

20%

40%

60%

80%

%of

Respondents

100%Current

Prior

63%

32%

6%


Key Finding:Generic strategies expected to yield greatest impact

Nearly 70% of plan sponsors believe increasing generic utilization will have the mostinfluence on controlling prescription drug costs in the future. Note that each 1%increase in generic dispensing rate can lower plan costs by .6%.

Total Respondents (N=200)Q. 8. Please rank in order the approaches that you think will have the greatest impact on controlling your prescription drug costs in the future.

Rules and Strategies thatrequire or encourage use of

mail order

CDH OptionsDisease Management Programs

Strategies Promoting Generics

68%

6%7%

19%


ImplementCo-payment

Waivers

Cost Share thatFavors Mail

Increase MemberAwareness

Communications

ImplementMandatory/

Incentive Mail

0%

10%

20%

30%

40%

50%

60%

70%

22%

8%

70%

52%

Key Finding:Push for mail gains momentum

A majority of organizations plan to implement more strategies to boostmail order in the next 12 to 18 months.

Total Respondents (N=200)

Q. 15. Please record below the specific initiatives employed by your plan to encourage mail order use. Then record the ONE specificinitiative you believe is most effective to encourage mail order use


Key Finding:Striving to create behavior-change

Two-thirds of organizations now use wellness and disease management programs. Of thosewho do not have a disease or wellness management program, many plan to in the nextthree years.

Probably/Definitely Will

Definitely Won’t

May or May Not

Total Respondents = 200

Q. 20. How likely are you to implement a wellness/disease management program in the next three years?

43%

45%

12%


Key Finding:CDH Revolution Slows

Despite the hype, there is minor intent to implement a CDHplan option in the next three years.


Q. 23D. How likely are you to implement a CDH program in the next three years?

Probably orDefinitely Will Not

Probably Will

May or May Not

52%

37%

11%


Key Finding:Trends in the adoption of CDH Plans

More than 20% of employers with at least 20,000 employees intendto offer a CDH plan this year.1

3% – 5% of employers with 1,000-15,000 employees intend toimplement a CDH plan for the 2008 benefit year.2

A closer look reveals the consumerism movement is growingthrough channels other than CDH plans, and includes a focus on

member engagement incentives and initiatives.

Sources:1 “How to Ensure the Success of Your Consumer-Directed Health Plan.” CDHC Solutions, May/June 20072.”9 Leading Trends in Rx Plan Management: Findings from a National Peer Study, Medco Health Solutions, 2007


Key Finding:Plan sponsors expect to continue to cover Medicare eligibles inthe coming years

Nearly two-thirds of organizations plan to retain some form of coverage for Medicare-eligibles.


Q. 27. Do you plan to “CONTINUE COVERING”; or “COVER” Medicare eligibles during the next 3 – 5 years?

100%

80%

60%

40%

20%

0%

%ofR

espondents

BUnder 5,000

C5,000+

DFor Profit

EPublic Sector

FUnion Group

GNon-Profit

ATotal

67% 69%63%

59%

80%83%

69%


How Plan SponsorsAre Controlling Drug Costs


Today, plan sponsors are focused on fourkey areas

Plan DesignPlan Design

ConsumerismConsumerism

Specialty Drug ManagementSpecialty Drug Management

Total Healthcare ManagementTotal Healthcare Management


Decreased Utilization

Prior authorization

Duplication of therapy

Refill too soon

Quantity/durationlimits

Encourage the useof OTC alternatives



Decrease the cost of theprescriptions

Plan CostPlan Cost

DiscountDiscount

Cost ShareCost Share

RebatesRebates



Move to a lower-cost drug

MultiMulti--source brandsource brandto generic equivalentto generic equivalent

SingleSingle--source brandsource brandto generic alternativeto generic alternative

NonNon--formulary brandformulary brandto generic alternativeto generic alternative



Engage plan membersConsumerismConsumerism

An approach for providing healthcarebenefits that combines a high deductiblehealth plan (HDHP) with a taxadvantaged account (e.g., HRA or HSA).

ConsumerConsumer--DirectedDirectedHealth PlansHealth Plans

The philosophy and practice ofinforming, rewarding, and engagingmembers to make prudent healthcaredecisions, regardless of plan design

HealthcareHealthcareConsumerismConsumerism


Add financial incentives tomotivate desired behaviors

Align plan goals with financial incentives to the consumer

- Plan design incentives – generics and mail

- Co-pay waiver programs

- Rebate sharing

- Higher level of coverage for preventive care

Empower members to take more control of their health

- Multi-channel member education

- Health and wellness management programs

- Rewards programs

ConsumerismConsumerism


Closely manage specialty drugutilization to protect costs and patient safety

Provide affordable coverage tooff-set plan costs

Manage utilization and demand

Align member choice with plan’sintentions

Permit coverage within theprovisions of the plan

Assure safe and effective use

SpecialtySpecialtyDrugsDrugs


ComplexChronicAcuteWell

Align healthcare investment

Integrated Disease Management & Wellness Risk management program that delivers financial rewards to participants based on quantifiable

improvements in health status

Detects at-risk populations before they become chronic and costly

Population Disease Management Disease state management

Engage individuals based on risk & acuity

High-Risk Care Management Targets high risk and complex patients

though one-on-one case managementand coordination of care

Total HealthcareTotal HealthcareManagementManagement


Summary

The pharmacy benefit is becoming more complex

New challenges arising along with new opportunities to bettercontrol costs

Today plan sponsors are focused on

Increasing generics and mail utilization to drive savings

Influencing members to focus on savings as well as their ownpersonal health

Balancing cost with care

In the near future, plans will need to consider theimpact of personalized medicine


Questions & Answers

orange county - trends in rx plan managementsource: 9 leading trends in rx plan management: findings...

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